Global: SEC Confirms Meme Coins Are Not Securities, Clarifies Regulatory Stance

The U.S. Securities and Exchange Commission (SEC) has officially clarified that meme coins do not qualify as securities under federal law. In a staff statement released by the Division of Corporation Finance on February 27, 2025, the SEC confirmed that transactions involving meme coins do not require registration under the Securities Act of 1933 and do not fall under the same regulatory protections as traditional securities.

Defining Meme Coins

Meme coins are a category of cryptocurrency inspired by internet trends, pop culture references, or social movements. Unlike traditional digital assets with defined utility, meme coins are primarily driven by speculation, entertainment, and community engagement.

According to the SEC, “Meme coins are akin to collectibles and typically have limited or no intrinsic use beyond social and entertainment purposes.” Given their speculative nature, these assets are known for extreme price volatility, often lacking fundamental economic value.

The clarification follows a surge in meme coin activity, including the controversial launch of $Trump, a meme coin introduced by U.S. President Donald Trump before assuming office, which quickly collapsed in value.

Why Meme Coins Do Not Qualify as Securities

Under federal securities laws, financial instruments classified as securities include stocks, bonds, notes, and investment contracts. The SEC determined that meme coins do not fit this definition based on two key legal standards:

1. The Securities Act and Exchange Act: Meme coins do not generate yields, provide ownership rights, or entitle holders to future earnings or assets of an enterprise.
2. The Howey Test: Based on the SEC v. W.J. Howey Co. precedent, an asset is deemed a security if it involves an investment in a common enterprise with an expectation of profit driven by others’ efforts. Meme coins failed to meet this test due to:
   • No common enterprise – Purchasers of meme coins are not investing in a structured business, and their funds are not pooled for development purposes.
   • No expectation of profits from others’ efforts – Value fluctuations depend on market sentiment and speculation rather than active management by a central entity.

Fraud Risks and Regulatory Oversight

While meme coins are not classified as securities, the SEC warned that fraudulent activities involving these assets remain subject to enforcement actions under other federal and state laws. The regulator emphasized that misrepresenting a digital asset as a “meme coin” to evade securities regulations will not be tolerated.

Additionally, the SEC’s Division of Corporation Finance will continue assessing the economic realities of crypto transactions to ensure compliance with broader financial regulations, reinforcing the importance of regulatory oversight in the evolving digital asset space.

As meme coins gain traction within the digital economy, the SEC’s stance highlights the need for market participants to exercise due diligence, particularly in navigating compliance risks and potential fraudulent schemes.